BJ’s Restaurants, Inc. — Form 10-Q Summary
Business context and reporting period
The filing is for the 13 and 26 weeks ended July 4, 2017, with comparisons to periods ended June 28, 2016. This differs from the request metadata’s “2015 Q2.” BJ’s operated 194 company-owned restaurants in 24 states as of August 7, 2017.
Financial performance
| Metric | 13 weeks ended July 4, 2017 | 13 weeks ended June 28, 2016 | 26 weeks ended July 4, 2017 | 26 weeks ended June 28, 2016 |
|---|---|---|---|---|
| Revenue | $265.8 million | $250.3 million | $523.6 million | $493.7 million |
| Operating income | $12.4 million | $19.6 million | $25.3 million | $36.0 million |
| Net income | $9.6 million | $13.8 million | $18.9 million | $25.4 million |
| Diluted earnings per share | $0.44 | $0.56 | $0.85 | $1.03 |
| Operating margin | 4.7% | 7.8% | 4.8% | 7.3% |
| Net margin | 3.6% | 5.5% | 3.6% | 5.2% |
- Quarterly revenue increased 6.2%; first-half revenue increased 6.1%. Growth was driven by newer restaurants, partly offset by lower comparable sales.
- Comparable restaurant sales fell 1.4% in both reported comparisons; traffic declined 4.2% in the quarter and 4.1% year to date, partly offset by average-check growth of 2.8% and 2.7%, respectively.
- Cost pressures and weaker comparable sales weighed on margins. Quarterly cost of sales rose to 26.2% of revenue from 25.0%; labor and benefits rose to 35.4% from 34.3%; occupancy and operating expenses rose to 20.6% from 20.0%.
- Cash from operations was $51.6 million for the first half, versus $70.9 million a year earlier; capital expenditures were $45.2 million versus $50.0 million. Management attributed lower operating cash flow partly to a prior-year $6.0 million lease termination fee, lower payroll accruals in the prior-year comparison, and lower net income.
- At July 4, 2017, cash was $22.7 million, working capital was negative $54.4 million, and the current ratio was 0.5:1. Long-term debt was $172.5 million. The $250 million revolving facility had $63.0 million available after outstanding borrowings and letters of credit; the company was in compliance with its financial covenants.
Material changes, outlook, and risks
- Revenue growth from new restaurants was offset by negative comparable sales. Seventeen restaurants had opened since the year-earlier comparison; seven of the planned 2017 openings were open by July 4.
- Interest expense for the first half increased to $2.0 million from $0.8 million, primarily due to increased credit-facility borrowings. First-half repurchases totaled $31.9 million for approximately 870,000 shares; $77.6 million remained under the $400 million authorization.
- Losses on asset disposals and impairments rose to $2.4 million for the quarter and $3.1 million for the first half, primarily from write-offs of older ovens and point-of-sale equipment following technology and equipment rollouts.
- Management expected to open 10 restaurants in fiscal 2017 and projected full-year capital expenditures of approximately $80 million to $85 million. It said a slower opening pace would support free cash flow and greater investment in existing restaurants. No specific revenue or earnings guidance is provided.
- Management cited exposure to food and labor inflation, negative traffic, consumer spending, competition, weather, hiring and wage pressures, lease costs, regulatory requirements, and execution of restaurant expansion and operating initiatives. A 1% interest-rate change on current facility borrowings would have an estimated $1.3 million annual impact on net income.
- The company disclosed ordinary-course legal claims, including self-insured exposures, and said their disposition was not expected to materially affect its financial position, results, or liquidity, while noting outcomes could affect particular periods. It also entered a new five-year DMA food-distribution agreement in July 2017; Jacmar, a shareholder-affiliated supplier, is part of DMA.
Important facts for investors to verify
- Confirm the intended reporting period: the filing covers the quarter ended July 4, 2017, not 2015 Q2.
- Track comparable-sales trends, especially traffic, and whether menu pricing offsets food, labor, and other cost increases without further weakening visits.
- Assess debt use, interest-rate exposure, covenant headroom, and the funding trade-off between expansion and share repurchases.
- Monitor planned 2017 openings and the $80 million to $85 million capital-expenditure estimate against operating cash flow and available credit.
- Review the new DMA agreement and related-party purchasing disclosures, and monitor legal, lease, and self-insurance exposures.